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TDSR – What You Should Know About Calculating Debt Ratio

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Most people understand the basic methods to calculate how much they can borrow. It is basically a percentage of monthly income minus the monthly debt commitments of the borrower. The remaining amount will then determine how much an instalment the borrower will be able to service on a housing loan. This figure can then reveal how much a loan quantum it is able to service.

The income of an individual can be easily be determined by means of computerized pay slips or income tax statements. It is the debt level that is difficult to pinpoint as how lenders determine them can vary from each other. The result was that different banks can end up approving loans amounts that differs greatly between them. This is why the Total Debt Servicing Ratio (TDSR) was introduced by MAS to address this ambiguity. It must be noted that lenders are still approving differing loan quantums, abeit with much smaller variances than before.

TDSR could affect you positively in that now you have lesser competition for buying homes, or negatively as the financial leverage you can get is limited. It could then make sense to you that you should understand how TDSR works so that you can manage it. Here are some things that you should learn about. You might have never heard of them before.

How to calculate TDSR formula equation

Is this the formula on how to calculate TDSR equation?


You want your recorded personal or household income to be as high as possible so that you have the best chances of securing the amount of funds you need. The undisputed method to validate your income is to have pay slips generated by credible payroll software. Lenders seldom challenge the authenticity of these documentation. Good software will often also include the variable components like allowances. These can be included for the banks as your income source. CPF contribution statements can also be a good gauge.

But your annual bonus could be a significant amount that you want the bank to know. And most pay slips do not disclose your annual bonus. In this case, you will have to submit your income tax statement as well. To see how stable your annual bonus is, lenders will usually require you to submit income statements for the last 2 years if you intend to use them to your income assessment. Note that computerized pay slips are sufficient. Tax returns are just additional documents for you to prove a higher income. So if your salary slip is more than enough to qualify you for the loan you need, there is no need for additional documents.

If you are newly employed, you will have to provide copies of your employment contract, signed and endorsed, clearly stating your job title, salary, and hire period (if any). If you are self-employed, you will have to provide tax assessment statements for the last 2 years. It can then be discounted as well.  And if you are buying tenanted property. You can use the tenancy agreement available to take in rental as part of the income. It will be discounted too.

Credit card balances

We instinctively think that as long as we make full payments on our cards at the end of each month, we will be free from any debt obligations from the bank or card issuer. That is not the case with TDSR. Your outstanding balances at the point of application will be counted as debt even if you have not run into any overdue periods.

The ironic part is that banks cannot acquire your credit card information from other banks. So they have to assess your credit status from the statements you submit for mortgage application. And surely you know that every credit card statement will show zero balance at the top and an outstanding balance at the end. Meaning to say that if we are to go about our normal lifestyles, we will be a credit card debt according to TDSR. For a clean record, you will need to fully pay off your bills at the end of last month, and don’t use it at all so that your latest statements will show nothing owing.

The exception is that your only card is with the bank that you are applying your mortgage with. Since they have up-to-date information on your card payments. They will have real time information on whether you have made full payments on it. So you do not have to rely on the latest statement that shows a running balance. Think this is a weird process? You are not the only one.

Debt commitments

There are generally 2 types of loans that we as general consumers have easy access to. The first type is those that gives credit line to use on a as-needed basis, like credit cards and overdrafts. The second type is term loans where borrowers draw down a whole amount of funds and repay it by instalments. We have talked about credit cards above. Now let’s touch on term loans.

As long as a credit facility requires you to make a monthly payment, it can be considered as a debt commitment. These include existing home loans, personal loans, car loans, study loans, etc. The sum of the monthly payments will be taken in as debt when calculating TDSR. If one of these financial commitments will finish running it’s course within 3 months, inform your lender with supporting documentation so that they can consider waiving it from calculations. It’s worth a try.

When you are self-employed or operating a sole proprietorship, you must already know that you are your company. So any debt commitments that your company takes up will go towards your TDSR as well. These include hire-purchases, equipment loans, working capital loans, etc. These items can usually be easily spotted by bankers from just looking at the business’s operating account statements for the most recent 3 to 6 months. But be mindful that because of banking secrecy requirements, things that are not indicated in bank statements or credit bureau reports are difficult to trace down. That’s why you are requested to voluntarily declare them.


This is a little painful to even mention. Being a guarantor for someone else is actually a common occurrence between family members. What are you going to do when a loved one needs you to be a guarantor when he is unable to qualify for a loan himself? We often do not think this even remotely affects our own credit when agreeing to it. But it have always been this way. And now TDSR has given it the publicity it deserves. If a study loan you have guaranteed for your niece has a $500 monthly payment, it will be considered as your debt as well. The good news is that it will be discounted. Bear in mind that this also means that if your niece defaults on the debt, your credit score will be affected as well.

Do contact us if you wish to seek an opinion.

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Want to see housing loan interest rate trends for the last 36 months?

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It makes absolutely no sense to pay more
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It makes absolutely no sense to pay more than you have to on a home loan.

Find the best mortgage rates here
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